LOMA 361 EVALUATION EXAMS 2025/2026 QUESTIONS
AND SOLUTIONS RANKED A+
✔✔investment yield ratio - ✔✔A profitability ratio that shows how efficiently the insurer
used its invested assets to earn a return. Also known as net yield
✔✔lapse rate assumptions - ✔✔The assumed percentage rates of a specified block of
policies or contracts that are voluntarily surrendered in a specified period, such as a
year
✔✔leverage effect - ✔✔A financial effect in which the presence of fixed costs-either
operating costs or financing costs-automatically magnifies the potential risks and returns
to the company's owners.
✔✔leverage ratios - ✔✔Financial ratios used to compare the amount of an insurer's
obligations with the insurer's ability to meet those obligations
✔✔liabilities - ✔✔Represent a company's monetary value for its current and future
obligations
✔✔life insurance reserves - ✔✔Contractual reserves established for a block of life
insurance policies
✔✔line of business - ✔✔In the context of cost accounting, a part of a business that has
a cost pattern distinct from that of other parts of the business.
✔✔liquid assets - ✔✔A company's cash and readily marketable assets
✔✔liquidation - ✔✔The process of selling all company assets for cash and using that
cash to pay the company's debts; any funds remaining are distributed to the owners of
the business.
✔✔liquidity - ✔✔The ease with which an asset can be converted to cash for an
approximation of its true value.
✔✔liquidity adequacy - ✔✔the minimum amount of liquidity that an insurer must have to
meet its requirements for cash.
✔✔liquidity ratios - ✔✔Financial ratios that measure a company's ability to meet its
maturing short-term obligations.
✔✔long-term assets - ✔✔Assets that a company plans to hold indefinitely or for a long
time-generally more than a year-to generate income. Also known as non-current assets
,✔✔long term budget - ✔✔A type of budget that generally covers periods of more than
one year. Also known as strategic budget
✔✔long-term liabilities - ✔✔Liabilities that do not have to be paid in full during the
current accounting period, usually one year. Also known as non-current liabilities.
✔✔loss - ✔✔In calculating net income, what occurs when an insurer loses money on a
transaction that is outside the insurer's core business operations.
✔✔Lower of Cost or Market (LCM) - ✔✔Under US statutory accounting, the valuation
method that defines the monetary value of a bond that is below investment grade as the
lower of its amortized cost or its fair value
✔✔maintenance expenses - ✔✔The category of operating expenses that includes
product-related costs that are incurred on in-force policies and contracts
✔✔management accounting - ✔✔The field of accounting that focuses primarily on
reporting a company's financial information to meet the needs of a company's internal
users
✔✔management audit - ✔✔A type of performance audit that focuses on improving the
effectiveness and efficiency of in insurer's operations
✔✔management by exception (MBE) - ✔✔A management style that focuses on results
that deviate from an established baseline
✔✔margin - ✔✔The difference between the cost of borrowing the funds and the return
earned using these funds. Also known as spread, marginal return, or profit margin.
✔✔marginal cost - ✔✔The additional cost incurred from producing one additional unit of
an existing product or service. Also known as incremental cost.
✔✔marginal unit cost - ✔✔The increase or decrease in the unit cost as a result of
producing an additional unit of a good or service.
✔✔master budget - ✔✔A type of budget that shows the overall operating and financing
plans for the company during a specified accounting period. Also known as a
comprehensive budget, corporate budget, performance budget or profit plan.
✔✔matching principle - ✔✔Under GAAP, an accounting principle which states that a
company should recognize expenses as the company earns the revenues related to
those expenses, regardless of when the company receives payment for the revenues
earned and regardless of when the company actually paid the expenses.
, ✔✔materiality - ✔✔The quality of accounting information that requires companies to
disclose all significant information in their financial statements
✔✔maturity date - ✔✔The date on which the bond issuer must repay to the bondholder
the amount originally borrowed.
✔✔mean liabilities method - ✔✔A revenue allocation method that allocates investment
income to lines of business based on the reserves that are attributable to each line.
✔✔measuring unit concept - ✔✔The accounting principle which states that a company
should record its accounting information in monetary terms such as dollars, yens or
euros.
✔✔minimum cash balance - ✔✔The amount of cash that a company determines is
necessary to pay all obligations in an accounting period without having excess cash.
✔✔modified opinion - ✔✔A type of standard auditor's opinion that contains explanatory
language concerning specific circumstances, such as material inconsistencies resulting
from a change in accounting principles or practices. Also known as modified unqualified
consistency report.
✔✔modified reserve valuation - ✔✔A method of calculating contractual reserves that
permits a US insurer to set a lower than level first year contractual reserve in
recognition of a product's high first year expenses.
✔✔mortality rate assumptions - ✔✔The assumed percentage rates at which death
occurs among a defined group of people of a specified age and sometimes a specified
gender within a specified period, such as a year
✔✔mortgage - ✔✔A loan secured by a pledge of specified real property
✔✔National Association of Insurance Commissioners (NAIC) - ✔✔An association of
state insurance commissioners designed to promote consistent insurance regulation.
✔✔negative leverage effect - ✔✔The effect of earning lower profit because of the
leverage effect.
✔✔negative variance - ✔✔A variance in which the actual amount or percentage of an
amount is less than expected.
✔✔net change in cash - ✔✔The increase or decrease in cash; the difference between
the net cash inflows and net cash outflows for an accounting period
AND SOLUTIONS RANKED A+
✔✔investment yield ratio - ✔✔A profitability ratio that shows how efficiently the insurer
used its invested assets to earn a return. Also known as net yield
✔✔lapse rate assumptions - ✔✔The assumed percentage rates of a specified block of
policies or contracts that are voluntarily surrendered in a specified period, such as a
year
✔✔leverage effect - ✔✔A financial effect in which the presence of fixed costs-either
operating costs or financing costs-automatically magnifies the potential risks and returns
to the company's owners.
✔✔leverage ratios - ✔✔Financial ratios used to compare the amount of an insurer's
obligations with the insurer's ability to meet those obligations
✔✔liabilities - ✔✔Represent a company's monetary value for its current and future
obligations
✔✔life insurance reserves - ✔✔Contractual reserves established for a block of life
insurance policies
✔✔line of business - ✔✔In the context of cost accounting, a part of a business that has
a cost pattern distinct from that of other parts of the business.
✔✔liquid assets - ✔✔A company's cash and readily marketable assets
✔✔liquidation - ✔✔The process of selling all company assets for cash and using that
cash to pay the company's debts; any funds remaining are distributed to the owners of
the business.
✔✔liquidity - ✔✔The ease with which an asset can be converted to cash for an
approximation of its true value.
✔✔liquidity adequacy - ✔✔the minimum amount of liquidity that an insurer must have to
meet its requirements for cash.
✔✔liquidity ratios - ✔✔Financial ratios that measure a company's ability to meet its
maturing short-term obligations.
✔✔long-term assets - ✔✔Assets that a company plans to hold indefinitely or for a long
time-generally more than a year-to generate income. Also known as non-current assets
,✔✔long term budget - ✔✔A type of budget that generally covers periods of more than
one year. Also known as strategic budget
✔✔long-term liabilities - ✔✔Liabilities that do not have to be paid in full during the
current accounting period, usually one year. Also known as non-current liabilities.
✔✔loss - ✔✔In calculating net income, what occurs when an insurer loses money on a
transaction that is outside the insurer's core business operations.
✔✔Lower of Cost or Market (LCM) - ✔✔Under US statutory accounting, the valuation
method that defines the monetary value of a bond that is below investment grade as the
lower of its amortized cost or its fair value
✔✔maintenance expenses - ✔✔The category of operating expenses that includes
product-related costs that are incurred on in-force policies and contracts
✔✔management accounting - ✔✔The field of accounting that focuses primarily on
reporting a company's financial information to meet the needs of a company's internal
users
✔✔management audit - ✔✔A type of performance audit that focuses on improving the
effectiveness and efficiency of in insurer's operations
✔✔management by exception (MBE) - ✔✔A management style that focuses on results
that deviate from an established baseline
✔✔margin - ✔✔The difference between the cost of borrowing the funds and the return
earned using these funds. Also known as spread, marginal return, or profit margin.
✔✔marginal cost - ✔✔The additional cost incurred from producing one additional unit of
an existing product or service. Also known as incremental cost.
✔✔marginal unit cost - ✔✔The increase or decrease in the unit cost as a result of
producing an additional unit of a good or service.
✔✔master budget - ✔✔A type of budget that shows the overall operating and financing
plans for the company during a specified accounting period. Also known as a
comprehensive budget, corporate budget, performance budget or profit plan.
✔✔matching principle - ✔✔Under GAAP, an accounting principle which states that a
company should recognize expenses as the company earns the revenues related to
those expenses, regardless of when the company receives payment for the revenues
earned and regardless of when the company actually paid the expenses.
, ✔✔materiality - ✔✔The quality of accounting information that requires companies to
disclose all significant information in their financial statements
✔✔maturity date - ✔✔The date on which the bond issuer must repay to the bondholder
the amount originally borrowed.
✔✔mean liabilities method - ✔✔A revenue allocation method that allocates investment
income to lines of business based on the reserves that are attributable to each line.
✔✔measuring unit concept - ✔✔The accounting principle which states that a company
should record its accounting information in monetary terms such as dollars, yens or
euros.
✔✔minimum cash balance - ✔✔The amount of cash that a company determines is
necessary to pay all obligations in an accounting period without having excess cash.
✔✔modified opinion - ✔✔A type of standard auditor's opinion that contains explanatory
language concerning specific circumstances, such as material inconsistencies resulting
from a change in accounting principles or practices. Also known as modified unqualified
consistency report.
✔✔modified reserve valuation - ✔✔A method of calculating contractual reserves that
permits a US insurer to set a lower than level first year contractual reserve in
recognition of a product's high first year expenses.
✔✔mortality rate assumptions - ✔✔The assumed percentage rates at which death
occurs among a defined group of people of a specified age and sometimes a specified
gender within a specified period, such as a year
✔✔mortgage - ✔✔A loan secured by a pledge of specified real property
✔✔National Association of Insurance Commissioners (NAIC) - ✔✔An association of
state insurance commissioners designed to promote consistent insurance regulation.
✔✔negative leverage effect - ✔✔The effect of earning lower profit because of the
leverage effect.
✔✔negative variance - ✔✔A variance in which the actual amount or percentage of an
amount is less than expected.
✔✔net change in cash - ✔✔The increase or decrease in cash; the difference between
the net cash inflows and net cash outflows for an accounting period
